How to plan your education loan repayment?

Education loan repayment is a very important factor, and your approach to repaying your loan should be smart. Many students treat this as a liability when it comes to paying off the debt, but prior research and planning will help you make a smart move. We frequently underestimate the importance of prior planning and taking a smart approach to loan repayment so that all future worries are alleviated.

Education loans are without a doubt a significant financial aid for students in need, particularly those who wish to pursue their education at prestigious foreign institutions. To repay your education loan, you need to understand the procedure and various aspects related to loan repayment in India so that, while planning, you avoid any sort of confusion.

How do I avoid being a defaulter?

You can avoid the situation of being a loan defaulter with caution. Below are a few measures you can take to avoid being a defaulter:

Smart Lifestyle and Living Choices: 

Making smart choices for lifestyle and living in a foreign city will be a safe move. It is a human tendency to spend money on things that are useful in day-to-day life. You can cut off expenses related to things that are not useful to you. Spending wisely on useful items will aid in the savings that can be used for loan repayment.

Use the funds wisely:

Living alone without family and friends in a new city abroad is a daunting experience. We become much more responsible and aware in terms of how we spend our time and energy. So, with money, you are required to plan your expenses in a way that allows you to save while also covering all your necessary requirements for living and education. Saving must be the priority at all costs.

Understanding the importance of budgeting: 

Since our childhood, we have heard this from our parents about budgeting. Maintaining your expenses' sustainability depends heavily on your budget. Making a budget forces you to consider where all of your money is truly going and the kinds of things you are buying. After analysis, it will be much simpler to stop spending money on pointless items. Further, it will help you save money and manage your expenditures.

Repayment While Studying: 

You can estimate the total number of EMIs or interest payments by computing it based on the number of years provided in the repayment period, but this entirely depends on the payment option that is available to you. The common issue that every student has is whether they can make EMI payments while they are still in school. For this reason, we indicated previously that it depends on their payment alternatives.

An education loan abroad comes with a payment holiday, or, as we can say, a moratorium period. This period usually refers to the extra time provided as a relaxation from paying any kind of EMI related to the loan taken. Students are not required to make any loan payments during the moratorium period; the RBI has made it mandatory to include the moratorium period as part of an education loan. This is the time between the end of the course and the start of a new job. An extra time ranges from 3 months to 12 months given to applicants to find their jobs post-completion of studies without being worried about loan repayment, but as we know, we have different kinds of lenders, so there is definitely a difference you will find in the moratorium period provided by your lender. Lenders have different policies related to the moratorium period.

Let's look at the factors given below to better understand how moratorium policies differ from one another.

In India, there are four types of lenders that usually deal with education loans: public banks, private banks, NBFCs, and international lenders. Here we have listed the provision of payment by different lenders.

Are your earnings enough to pay off the education loan?

Finding a job within the moratorium period is one of the major tasks for students. Getting a well-paid job will reduce the last-minute anxieties of loan repayment. Mostly, students start researching for the job during their final year.

Students studying in other countries take on part-time jobs and assistantships in college to help with loan repayment and supplement their income. A well-paying job will ensure that you will be able to make the payments on time and also add up to the amount required for loan repayment. Loan repayments, or EMIs, consume a large portion of our monthly earnings, which is why it is critical to manage your expenses and diversify your sources of income.

To get an estimate of the EMI payable every month, you can use the Education Loan Guru EMI Calculator. Calculating your future EMI payments will give you a precise understanding of how much you will have to save for repayment from your monthly earnings, which will be helpful in making a clear plan accordingly.

How can a smart plan be your saviour in the future?

Planning early for abroad education loan repayment is an important step towards your loan repayment. It is recommended that students use their financial resources wisely and try to earn as much money as possible while studying; this will allow them to pay their expenses while also saving for loan repayment. Make a budget and stick to it in every way possible.

Here we are suggesting some ways by which you can increase your earnings, utilise the best of your time, and earn some work experience too. Having prior work experience on hand will be helpful in landing a well-paying job in the future.

Part-time jobs or an assistantship: During their studies, most students participate in assistantship programmes or part-time jobs with hourly and weekly pay. Thus, doing part-time jobs is the best possible way to earn and manage savings for future loan repayments. Suppose in your part-time job you are earning 15 dollars per hour, and students are allowed to work 25 hours a week. On average, a student can earn between 500 and 1000 dollars a year in INR (between 40,000 and 85,000), and you can use this money to pay back your education loan.

Paid internships: mid-semester breaks are the best time to use them to make money. Students can join paid internship work programmes related to their course or internship that would be beneficial in the future. You can use it this time to gain work experience while also earning money.

What is the disadvantage of a long repayment duration?

At first, a lengthy repayment period might seem advantageous, but later on you'll feel overburdened. Assume you have a 20 lakh INR education loan abroad with a 10% interest rate. If the rate of interest and repayment time is 7 years, your total interest payable would be Rs 7,88,999, and the total amount including interest payments would be Rs 27,88,999. On the other hand, if your repayment period is longer than 7 years, say 12 years, then your total interest payments would be INR 34,41,826. This simple comparison is sufficient to clarify the importance of a shorter repayment period.

Loan refinancing: How would refinancing the education loan benefit you?

As mentioned above, refinancing your foreign education loan would be a better option than opting for a loan with a longer repayment tenure. Students can negotiate a lower interest rate or a rate reduction with their new lender. If you get a job, you may be able to negotiate a lower interest rate.

If you still need assistance with your education loan to study abroad, then consult the Education Loan Guru for the right guidance.